Despite talk of a 'bond bubble' investors continued to plough money into bonds during the first quarter of 2012, according to the latest European asset flow research from Morningstar.
European investors placed nearly €14 billion of new money into fixed income, bringing the quarterly total to €37 billion for bond funds. The latest dat on European asset flows from Morningstar highlights a similar story in the US, where investors have been fleeing equities for bonds for many months now.
But recent flows into bond funds should not be interpreted as a vote of confidence in the Eurozone, says Dan Lefkovitz, from Morningstar's European Research Team. He points out that, rather than government bond funds, European investors showed a preference for corporate debt, corporate high yield, and emerging market sectors, which monopolized fixed income flows in the first quarter. Morningstar’s USD High Yield Bond category experienced organic growth of 18.3% over the first quarter, making it one of the fastest growing categories.
"European investors are clearly differentiating between troubled governments and profitable corporates, between the indebted West and cash-flush emerging markets," says Lefkovitz.
Morningstar says hunger for yield as well as 'skittish' investors seeking alternatives to equities were big drivers.
"Convertible bonds likely benefit from this same ‘not quite equity’ perception. European investors sent more than €1 billion to convertibles funds in the first quarter. Meanwhile, yields on bonds are falling and talk of a ‘bond bubble’ is growing."
Given the above, Morningstar says it’s not surprising that the most popular equity funds of the first quarter were focused on emerging markets and income-oriented stocks. Aberdeen Global Emerging Markets took in €1.5 billion for the quarter; investors sent nearly €1 billion to both M&G Global Dividend and Templeton Asian Growth.
"The three funds hold Morningstar Analyst Ratings of Gold, Silver, and Bronze respectively, reflecting our analysts’ conviction in their relative prospects."
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